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Levy hike not the answer

  • [ 16-02-2016 ]
    Levy hike not the answer
    Hiking foreign worker levy is supposed to encourage employers opt for automation to reduce labour costs and increase productivity, but it’s unlikely to happen in the short term.

    Hiking foreign worker levy is supposed to encourage employers opt for automation to reduce labour costs and increase productivity, but it’s unlikely to happen in the short term.

    There are too many ministries and agencies involved in the employment of foreign workers.

    THE sudden announcement of the government increasing the levy for foreign workers has caught the SME community unprepared. The levy for manufacturing, construction and service sectors has been increased to RM2,500, while the levy for plantation and agriculture sectors has been increased to RM1,500. The figures represent a hike of 100% to 300% in foreign worker levy.

    We are told that the new measure is to reduce dependence on foreign workers and accelerate automation in the labour intensive sectors. Furthermore, the growing number of foreign workers in the country has brought many security and social issues.

    The question to be pondered here is whether a hike in levy is the right move for resolving the above mentioned issues.

    Based on the estimate of the Human Resource Ministry, there are six million foreign workers (both documented and undocumented) in Malaysia. It is nearly half the size of the Malaysian labour force. The figure suggests that our labour force is heavily dependent on foreign workers.

    The reality is that our economy would be adversely affected without the presence of sufficient foreign workers to meet the industries’ needs. There has been a shortage of labour in the market as a result of low unemployment rate in the country. Many industries are forced to hire foreign workers, even though they have to bear with the increasing costs and convoluted process of hiring.

    The government thinks that the hike in foreign worker levy would encourage employers to make up their mind and opt for automation in order to reduce labour costs and increase productivity. Unfortunately, this is unlikely to happen in the short term. Automation requires economy of scale and capital, the conditions of which are lacking among SMEs.

    The fundamental issue is the need for better management of foreign workers in the country.

    At present, there are too many ministries and agencies involved in the employment of foreign workers. They are uncoordinated and often redundant, if not conflicting, in the decision-making and processing of employing foreign workers.

    The redundant processes and involvement of monopoly out-source agencies in hiring of foreign workers have resulted in additional costs without any value-added elements. This includes biometric health checks by Bestinet (costs US$30/RM123.65), fingerprint for ISC (RM105), collection of passport at OSC (RM100), issuance of visa by VLN (RM105), mandatory online renewal of foreign workers work permits via MyEG (RM38), medical checks in Malaysia by Fomema (RM180 for male and RM190 for female), and the appointment of monopoly agencies (eg Synerflux Sdn Bhd) for recruitment and processing of foreign workers. These are the official charges for the services, and the “unofficial” charges can be much higher at any time. The costly and convoluted process of hiring foreign workers provides incentive for employers to hire illegal foreign workers.

    Solution to the issues would be to make the Human Resources Ministry (MoHR) the highest and sole authority in management and recruitment of foreign workers. With the power assigned to the Ministry, it should take the lead in identifying the country’s needs for foreign workers and introduce an efficient, cost effective, and transparent foreign worker recruitment system.

    In this regard, the MoHR must work with all stakeholders, for instance, the industry associations and chambers of commerce, by forming a Foreign Worker Management Council that functions as the highest authority, providing total solutions to foreign worker issues. The Council shall identify the needs for foreign workers in the key economic sectors, training for foreign workers, collect feedback and oversee the implementation of the management and recruitment of foreign workers in the country.

    Instead of outsourcing the work of hiring and processing to third party agencies, it should be carried out by MoHR. The whole process of application and hiring of foreign workers must be made available online without imposing charges. Also, the MoHR should share the online application and hiring system with the Home Affairs Ministry in order to facilitate smooth issuance of visa and work permit. This would avoid any rent-seeking activities and unproductive processes in hiring foreign workers.

    The training for foreign workers should be carried out by respective industry associations and chambers of commerce. This is to ensure that foreign workers are receiving the right skills that are needed by the respective industries.

    Legalising illegal foreign workers is another move that should be taken by the government. In view of how we are short of labour and undocumented foreign workers are already employed in Malaysia, legalising these workers is more cost effective than deporting them and importing new foreign workers to fill the gaps.

    The Home Affairs Ministry should fully take charge by setting up a one-stop centre to handle all the processes in relation to issuance of visa and permit. All processes related to legalising foreign workers must be available online to allow direct access by employers and avoid unproductive costs incurred due to rent-seeking activities.

    The legalising exercise would bring in additional revenue to the government through collection of levy. This revenue must be ploughed back to the respective industries, in particular the SMEs, for the purposes of up-skilling of local workers and automation. This will not only contribute to achieving 35% skilled workers by 2020 under the 11th Malaysia Plan, but also move to reduce dependence on foreign workers in the long run.

    Michael Kang is the national president of the SME Association of Malaysia.